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Complicated health care system has its costs

No one pays full cost, CEO of CGH says

Published: Saturday, May 17, 2014 1:15 a.m. CDT

Editor's Note: This is the first in a two-part series about local hospitals and health care costs. On Monday, we look at KSB Hospital in Dixon.

STERLING – Paying for health care is complicated. No one seriously argues with that.

And it takes a lot of people to figure it all out.

In Sterling, CGH Medical Center has 1,400 employees. If this country had a simpler health care billing system, how many fewer employees would CGH need?

“About 125 positions,” said Dr. Paul Steinke, CGH’s CEO and president. “That is a rough guess.”

Jessica Harriger, an assistant economics professor at Western Illinois University in Macomb, said that is not unusual.

“Around the world, we have one of the largest shares of health care dollars going to overhead and administration,” she said. 

Simplification, she said, would reduce the number of employees devoted to financial issues.

“That would mean some transitional unemployment,” she explained. “It would also mean a lower tax bill for taxpayers and cheaper medical care, or at least stem the rise in costs for medical care.”

Every hospital has what is known as a chargemaster, which is a comprehensive list of billable services and items. It is typically inches thick.

Medicare and Medicaid reimburse providers the least. Private insurers, such as Blue Cross Blue Shield of Illinois, negotiate down chargemaster prices, but not nearly as low as government programs pay.

Many ‘automatic discounts’ at CGH

Last year, a Time magazine investigation showed that uninsured people often are the only ones who are issued bills with full chargemaster rates.

At CGH, a city-owned hospital, no one pays full price, Steinke said in a recent interview in a fourth-floor conference room.

“If you come without insurance, we take care of you,” he said. “Our first question isn’t whether you can pay for this. We worry about paying bills after that. The vast majority of those who self-pay are given automatic discounts. We write off a lot of it.”

Since 1977, the hospital has recorded positive net income every year but two. It had relatively small deficits in 2002, the year after Northwestern Steel & Wire mill closed, and in 2008, during the recession.

In fiscal year 2014, it saw net income of $9.9 million. Its total revenue that year was nearly $200 million.

Privately insured patients, Steinke said, subsidize just about everyone else. 

For Medicare and Medicaid, the hospital loses $15.1 million a year. Discounts for the insured and charity care amount to $6 million. And bad debt comes in at $2.9 million. The shortfalls total $24 million.

Still, Steinke said he didn’t want to knock the government’s health care programs.

“Medicare has been successful for maybe two or three generations,” he said. “Medicare is a great program, but it is not covering the costs.”

The books are being balanced on the backs of small businesses that provide their employees health insurance and people with individual insurance policies, Steinke said.

Hospitals not ‘invulnerable’

Despite the imbalance, Steinke said, the health-care industry has done well since 2000. For a time, hospitals were the “big and shiny” part of the economy, he said, “but we are struggling to stay afloat with all of the governmental regulations.”

“One-third of Illinois hospitals lost money last year. It’s fair to say that there have been good times for health care, whereas for other parts of the economy, that hasn’t been the case. That doesn’t mean we’re invulnerable,” said Steinke, who took the helm 1-1/2 years ago. 

So what about the Affordable Care Act, commonly known as Obamacare?

“Some of the aims of the Affordable Care Act are laudable,” Steinke said, mentioning the requirement that insurance companies accept people with pre-existing medical conditions. But it doesn’t solve the fundamental health care financing problem, he said. For CGH, that problem is the $24 million shortfall – a “hidden tax,” Steinke said.

Harriger, the professor, agreed about the Affordable Care Act.

“Privately insured patients are the ones who are ultimately subsidizing,” she said. “The Affordable Care Act doesn’t address this dynamic. It could make it worse, depending on how strict the government is with repayments.”

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